FMC Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. FMC is an agricultural sciences company operating in one segment, focused on crop protection products. Financial statements are unaudited; the interim information received an independent accountant’s review.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $1,155.3 million | $1,206.1 million | $2,405.3 million | $2,398.2 million |
| Gross margin | $522.7 million; ~45% | $550.5 million; ~46% | $1,084.2 million; ~45% | $1,095.2 million; ~46% |
| Income from continuing operations | $195.8 million | $194.4 million | $409.5 million | $402.0 million |
| Net income attributable to FMC stockholders | $184.4 million | $174.5 million | $390.6 million | $390.2 million |
| Diluted EPS attributable to FMC stockholders | $1.41 | $1.32 | $2.99 | $2.94 |
| Adjusted EBITDA (non-GAAP) | $340.5 million | $337.8 million | $697.4 million | $681.2 million |
| Operating cash flow, continuing operations | Not presented quarterly | $(48.4) million | $(216.8) million | |
| Free cash flow (non-GAAP) | Not presented quarterly | $(167.0) million | $(279.4) million |
Balance sheet at June 30: Cash was $342.7 million; total debt was $3,533.4 million, including $505.9 million of short-term debt and current maturities. Total assets were $9,993.7 million and total equity was $2,850.9 million. Available capacity under the revolving credit facility was $1,041.6 million. Actual leverage was 3.2 versus a 4.25 maximum, and interest coverage was 7.3 versus a 3.5 minimum; FMC reported compliance with all covenants.
Changes versus prior comparable periods
- Q2 revenue fell 4% year over year, primarily from a 7% unfavorable foreign-exchange effect; volume and price contributed approximately 2% and 1% growth, respectively. Excluding currency, revenue rose about 3%.
- First-half revenue was nearly flat: higher volume and pricing were offset by an approximately 6% foreign-exchange headwind.
- Q2 gross margin declined $27.8 million, with gross margin percentage down about one percentage point. SG&A fell 13% and R&D fell 12%, reflecting temporary cost controls and deferred non-essential spending.
- Adjusted EBITDA increased 1% in Q2 and 2% for the first half, supported by pricing, volume and cost controls that more than offset currency pressure.
- First-half operating cash flow improved from $(216.8) million to $(48.4) million but remained negative. Working-capital movements included a $486.1 million reduction in customer advances, partly offset by a $202.6 million increase in accrued customer rebates.
- First-half net income was approximately flat; 2019 included a gain on sale of land associated with discontinued operations, while 2020 had higher discontinued-operation losses.
Outlook, commentary and risks
- 2020 guidance: Revenue of $4.68–$4.82 billion; adjusted EBITDA of $1.265–$1.325 billion; adjusted diluted EPS of $6.28–$6.62; and free cash flow of approximately $425–$525 million. FMC raised the midpoints of adjusted EBITDA and EPS guidance and narrowed those ranges. These are non-GAAP outlook measures; the filing does not provide corresponding GAAP forecasts.
- Management expected the global crop-protection market to be flat to slightly down in U.S. dollars, with continued foreign-exchange headwinds and some pandemic-related disruption. It identified logistics costs, localized demand weakness and farm-labor availability as risks. All facilities remained operational, and FMC reported no COVID-related furloughs or workforce reductions to date.
- FMC expected continuing-operation operating cash flow, excluding transaction-related cash flows, of $700–$900 million. Planned 2020 environmental spending across continuing and discontinued sites was $83–$93 million; projected legacy and transformation spending was $175–$225 million.
- Share repurchases were suspended amid uncertainty; management said it expected to revisit them near the end of Q3 and anticipated a possible restart in Q4. The debt amendments restrict stock purchases if leverage exceeds 3.5 through June 30, 2021. FMC declared a $0.44-per-share quarterly dividend payable October 15, 2020.
- DuPont Crop Protection integration was substantially complete, but ERP transition and related initiatives remained. FMC expected $30–$35 million of remaining expense for defined in-flight initiatives and $10–$15 million of remaining DuPont Crop restructuring charges. The final ERP phase was planned for November 2020, with stabilization into Q1 2021.
- Environmental reserves, net of recoveries, were $558.8 million; reasonably possible environmental losses exceeded accrued amounts by approximately $150 million. The Pocatello Tribal litigation remained subject to possible U.S. Supreme Court review; no reserve change was recorded. A Livent IPO securities action remained pending in state court after the federal complaint was dismissed; Livent agreed to defend and indemnify FMC.
- In May FMC made a binding offer, followed by a July agreement, to acquire Isagro’s Fluindapyr assets for approximately $60 million, with closing expected in Q4 2020. The filing states the acquisition would be treated as an asset acquisition.
Investor verification priorities
- Track currency effects, regional demand and whether price and volume gains support the full-year revenue and adjusted earnings guidance.
- Assess conversion of earnings into cash, especially seasonal customer advances, receivable collections, rebate accruals, inventory and planned free-cash-flow recovery.
- Monitor leverage, short-term borrowings, covenant headroom and the conditions governing any resumption of share repurchases.
- Review the scope, timing and cash consequences of environmental obligations, including Pocatello and discontinued sites, and follow the Livent litigation.
- Verify completion costs and timing for the ERP transition, remaining integration restructuring, and the proposed Fluindapyr acquisition.